Universal Credit: a simpler system funded by benefit cuts?
Today is the deadline for the Government’s consultation on 21st century welfare – which has been marked, as Richard reports, by The Times announcing the consultation’s outcome: the Government look set to introduce a ‘Universal Credit’, a single working-age benefit (which will incorporate a wide range of existing benefit payments such as JSA, Employment and Support Allowance, Housing Benefit and Income Support) that will be paid to claimants out of work, and then tapered off at a rate of 65p (or possibly 60p) in the pound as they move into jobs.
The TUC’s response to the consultation is here: broadly, we welcome several of the principles behind the approach (and disagree strongly with others), but have concerns about what the practical realities of this system will mean. Social security is an area where the devil really is in the detail: implementation of the Universal Credit could in practice lead to some of the most regressive changes in the benefits system for decades.
The consultation document makes several points that we welcome. The Government’s ambition to ensure that all benefit claimants who move into jobs are better off financially is laudable. While recent years have seen significant improvements in the rewards of work, including the introduction of the National Minimum Wage, Tax Credits and the Better Off In Work Guarantee, the complexity of the social security system, combined with real costs of moving into jobs, can mean that some people do still experience only limited financial rewards from work. It is also the case that the benefit system should do more to support claimants with the insecurity of moving from benefits into low-paid temporary employment – a problem that a Universal Credit system, where in and out of work benefits are part of the same claim and are responsive to regular changes in earnings, could have a good chance of achieving.
But there are many areas where we disagree with the Government’s analysis. A key problem with the DWP’s position is the lack of recognition of how we got here – complexity is a result of the varied realities of different families’ lives, and of the need to contain costs in social security expenditure. Will it really be possible to introduce a universal taper (particularly in the current fiscal climate) where there are no losers? Simplification may therefore be a proxy for cuts – a taper rate of 65p in the pound may be more generous than the current rate for some benefits, but with Tax Credits currently tapered off at 39p in the pound, the withdrawal rate for working families who get these benefits will increase significantly – and their incomes will therefore fall. In addition, the document makes no mention at all of how costs such as childcare and housing costs will be met – reducing the value of these entitlements but then tapering them off at a lower rate will still be a cut for many.
Evidence of the Government’s approach to welfare to date also suggests that this change will be a far from comprehensively progressive measure. While 21st century welfare aspires to increase the in-work incomes of people moving from benefits into jobs, many specific measures that have actually been announced by the Government to date move towards a more complex and less generous social security system. Specific examples include the introduction of a £2,500 disregard for in-year income falls for the calculation of Tax Credits (which will make the system less responsive to changes in households’ circumstances), cuts in Housing Benefit for working families (which will reduce their in-work incomes) and an increase in the taper rate for Tax Credits from 39 per cent to 41 per cent, which will increase marginal deduction rates and reduce the incomes of working families.
And overall, we are far from convinced that the primary problem preventing people from moving from benefits into work is poor financial incentives – the most significant issue by far is the lack of jobs: across the economy, there are currently only 467,000 jobs available, with the most recent data showing a quarterly fall in the vacancy level. Vacancies remain around 160,000 below their pre-recession peak, the ratio of jobs to unemployed people is 1:5.1 and there are far lower vacancy rates in some areas of the country. The economic reality is that unemployment is a result of poor demand for labour, not failures of the welfare system. Government would do well recognise the importance of developing effective active labour market policies, as well as simplifying welfare.
The consultation document also contains a number of extremely concerning proposals including permanent cuts in benefits for claimants who do not comply with the Jobseeker’s regime, localised benefit rates and in-work conditionality (cutting benefits for those who are in-work but are unable to increase their hours). The TUC would be strongly opposed to all of these measures – both on grounds of fairness and their ineffectivness at helping people move into work.
So, today’s suggestion that the Government has made a topline committment to benefit simplification is welcome. But it also seems extremely likely that these reforms mean we end up with a far harsher, and for many less generous, social security regime.